Larry Fitzmorris: Town Audit Covers Up Deficit

Audits of a local government’s financial operations are supposed to present to elected officials and citizens an accurate summary of how our tax revenues are spent. The recent Portsmouth Town audit fell far short of that mark. We all depend upon straightforward municipal financial reports to discourage deficits and overspending. Deficits can lead directly to additional tax increases and are supposed to be closely monitored by State agencies.

The audit for the Portsmouth budget year 2016 – 2017, which ended June 30, 2017, was presented to the Council on January 22 as a “clean audit.” While the auditor and the Town Administration tried to put a positive spin on the audit, there were serious problems with how the budget was handled. There was a lack of conformance with State law and the Portsmouth Town Charter. The Town also ended the fiscal year with a budget deficit caused by a shortfall in revenue, compounded by over-expenditures. And there were unannounced changes to the audit document itself, after it had been submitted to the State.

After considerable effort studying Town Budget documents, the PCC team discovered that $600,000 in bond funds had been moved into the budget to eliminate a deficit. This discovery was made prior to the publication of the audit.

Responding to a question during his presentation, the auditor confirmed that the final audit had been changed at the request of the Town Administration and a new copy was submitted to State agencies. At the very least, this should have been a Council decision and puts into question the independence of the audit. The original version of the audit posted on the Town’s web site was replaced without any public notice or a document label stating it had changed. The PCC team discovered that change on its own. The updated version reflected the addition of $600,000 to revenue at the end of the fiscal year, which the first version did not.

The auditor, under questioning, did admit to Councilman Kesson that without the addition of the unbudgeted $600,000 from bond proceeds, there would have been a deficit. Using bond proceeds in that manner must be approved by the Council, and the Council had no prior knowledge that it was done. This is a serious breakdown in controls.

The auditor did not review budget controls in the course of his examination of financial operations, as has been done in previous audits. Responding to questions from the PCC, Council President Hamilton admitted that the addition of $600,000 by the Administration was done without the permission of the Council and commented that it would not happen again. The PCC also made the case that notification of State agencies should have been made on the deficit, and that the use of bond proceeds to reduce a deficit was prohibited by State law. The Administration disagreed and refused to review the law.

The audit is supposed to be an accurate report on the budget to both the Council and the people and it clearly was not. IF the relevant State agencies were watching this process, they would have rejected this audit. A precedent has now been set that when the town budget is in deficit, the Administration can raid bond proceeds and bank accounts to fill the gap. And the Town can end up with a clean audit statement from the auditing firm. That is not an acceptable outcome.